‘A part of all I earn is mine to keep.’
Say it in the morning when you first arise.
Say it at noon. Say it at night.
Say it each hour of every day.
Say it to yourself until the words stand out
like letters of fire across the sky.
GEORGE S. CLASON (THE RICHEST MAN IN BABYLON)
Welcome to our latest newsletter – it’s certainly been a challenging three months. First the bushfires, then the floods, and now coronavirus. Bushfires and floods are nothing new, and, as you will read later, the world has suffered some frightful viruses. But, as always, the key is to take a long-term view, and don’t get spooked by what happens on a day-to-day basis.
As I’ve often told my children, all we want to do is pass the car in front. But guess what? The moment we pass the car in front, there is another car in front! I’m sure when the coronavirus has run its course there will be something else to make the headlines.
Markets and Interest Rates
People are always asking me where I think markets are heading and whether now is a good time to invest. I always tell them no one could accurately forecast what markets will do, so – as long as you are satisfied with your asset mix – you should hang in there for the long term.
Every morning, I scour the financial press for news that I consider valuable, and a couple of items last week caught my eye.
First were comments from a couple of large super funds saying they would welcome a fall in the markets because it would give them a chance to buy cheaply. Of course, this puts a substantial floor under our stock market because the more it fell, the greater buying would come from the big funds. Our superannuation system is in danger of becoming a victim of its own success. There is now over $2.7 trillion in superannuation and 9.5% of gross payroll is added every year. The main difficulty now for the big funds is to find good assets to invest in.
In last Saturday’s Australian Financial Review, Hamish Douglas from Magellan made a very good point:
“It’s very hard to get rates off the floor, because if we try and get off the floor from where we are at the moment, we know there will be major effects on asset prices and ultimately economic effects.”
In his view, there is an 80% probability of the low rate environment continuing and possibly further rate cuts ahead.
When you put these two items together, I believe it is reasonable to expect another reasonable year for world markets, as low interest rates will continue to make growth assets like property and shares attractive. Of course, if you have a home loan, you should be searching around to make sure you have a competitive interest rate, and above all stay away from fixed home loan rates at the moment.
Three couples I know have sold their homes and have a fair bit of cash available. This is reasonably short-term money – two of the couples are awaiting completion of an apartment block which may take two years, and the other couple is taking an extended holiday in Europe after which they will buy again in Australia. They have all asked me what I thought would be a good place to put the money. As one put it “I can’t stand the thought of money wasting away in the bank earning 1%.”
Well, money in the bank is not “wasting away.” It’s there to take advantage of the unique benefit of bank deposits – you know the money will be there when you need it, and it won’t suffer a 10% drop if the market tumbles.
As I have said many times, because of the way compounding works, the rate matters little if the term is short. The only way to have a chance of getting a higher return than bank interest is to invest in bonds, shares or property, and all of these have the potential to show a capital loss as well as give you a capital gain. In any event, if you are lucky enough to have a capital gain, you will be liable to capital gains tax.
So remember the fundamental principle – if you choose to invest in property or shares, have a 7-10 year timeframe in mind.
On track for your goals?
February is almost gone, and if you are like most Australians, the goals you made with such enthusiasm a few weeks ago, have faded away. That’s probably because you fell for what psychologists call the “fresh start effect” whereby you use a point in time such as a significant birthday, or a date like New Year’s Eve, to create a new mental accounting. That lets you put past failures behind you and start the plan of a better future.
Most studies about goal setting recommend the SMART technique – you are most likely to reach our goals if they are specific, measurable, attainable, personally relevant and timebound.
But the trouble with many timebound goals is that you relax once you are making measurable progress. You know the feeling – you start to reduce your calories to reduce weight, and within a few days you are thrilled to find that results are showing. For too many of us the way to celebrate that success is to go back to our normal diet.
In my experience, the secret of achieving goals is take a long-term view, and then set small individual goals as you go along the path to financial independence. The best way is to develop a routine – a simple one is to just devote 10 minutes every day to doing something to help your financial progress.
If you were lost, the best map in the world would be hopeless, if you didn’t know your location. So, the first step is to write out exactly where you are now. It simply of a matter of recording your financial assets, and any liabilities, plus details of your net income.
The hardest part of doing this is to start, so decide today to spend 10 minutes writing out a statement of your financial position. It’s likely after 10 minutes have passed that you will be so engrossed in the task that you will happily keep on going. Alternatively, putting your financial situation in writing may throw up other tasks such as finding out the interest rate you are paying on your home loan or the current balance of your superannuation. These jobs could be added to a do list which will be the basis of your 10 minute exercise tomorrow, and maybe the next day. Keep it up until it becomes a habit and you will be amazed at the progress you can make.
It sounds simple but it works a treat. Also arrange your affairs so investment happens automatically. This could be as simple as increasing the repayments on your housing loan by converting monthly payments to fortnightly payments, or opening a RAIZ account and having a set sum invested in it each payday.
Remember the biggest drawback to becoming financially independent is to spend more than you earn, and credit cards are designed to encourage us to do just that. A major goal should be to replace your credit card with a debit card whereby all spending is debited to your bank account, instead of being borrowed to be paid back from future earnings.
I appreciate this could be a big task if you are hooked on credit now, but maybe be a good intermediate goal would be to pay back 10% of your outstanding credit card balance each payday to cover your past excesses, and do all new spending on a debit card. This would have the balance paid in full within 12 months, after which time you could start an investment program free from the burden of consumer debt.
The coronavirus is showing no signs of easing, and of course it’s creating uncertainty in markets. But let’s take a long-term view and look at the graph below from my good friend Ashley Owen of Stanford Brown, one of Australia’s leading financial advisory firms.
Spanish flu hit near the end of the First World War, infecting an estimated 500 million people, up to one third of the global population. It killed an estimated 50 million people or around 2.5% of world population, which was three times the total number of people killed in the war itself.
Despite infecting one third of the world’s population, killing 50 million people and hospitalising hundreds of millions more, the impact on share markets was limited. In the immediate post-war years, share markets were hit by a massive bout of post-war inflation (20%+ in Australia and the US) and equally damaging fiscal and monetary tightening to fight inflation. Once inflation was brought down by sharp recessions in 1920-1, share prices took off and started the long 1920s boom driven by post-war housing, urbanisation and new technology – motor cars, radios and other household appliances.
The 1957 ‘Asian flu’ A/H2N2 virus is thought to have started in China’s Yunnan province from animal and human H1N1, and avian H2N2 virus strains, then through Hong Kong to the rest of the world. It killed 1 – 2 million worldwide, mainly infants and the elderly, including 70,000 Americans but only 2 in Australia.
Shares were unaffected by the crisis and kept rising in Australia and the US during the great 1950s post-WW2 boom that was fuelled in both countries by housing, infrastructure and consumer finance – not unlike the 1920s post-WW1 share boom.
The 1968-70 ‘Hong Kong flu’ A/H3N2 pandemic came in two waves across the world, the first in 1968-9 and second in 1969-70. It is thought to have originated as a mixed infection of an animal with human H2N2 and avian H3Nx virus strains in Asia. It killed an estimated 1 million world-wide, mainly elderly, including 34,000 Americans and 2,400 Australians.
At the time, share markets were enjoying the 1960s ‘space race’/ aeronautics boom in the US, which triggered the speculative mining boom in Australia, especially in metals like nickel which was used in aeronautics, and was also in high demand for armaments in the Vietnam War.
2009-10 – ‘Swine Flu’ or ‘Mexican flu’ – H1N1 originated in Mexico and spread around the world infecting between 700 million and 1.4 billion people and killing about 200,000, mainly the young, including 12,000 Americans and 1,600 Australians. For shares, 2009-10 was of course the great rebound from the GFC share market crash. Share prices powered through the flu pandemic and other crises like the European bank runs, first Greek debt bailout, Iceland and Irish bankruptcies & bailouts, the Dubai debt crisis, etc.
A new force in success authors
My son, James, now lives in Los Angeles where he has a thriving business as a speaker, entrepreneur, and coach. Recently, he was asked by the Napoleon Hill Foundation to write a modern companion to the bestselling self-help book in history, Think and Grow Rich by Napoleon Hill. You might recall that Hill’s 1937 classic was the book that completely changed my life, and I’m extremely honored that James now plays an integral role in sharing these lessons with younger generations.
The book is called Think and Grow Rich: The Legacy and the main theme is that how you respond to adversity when it inevitably strikes is far more important than the adversity itself. This is demonstrated through a combination of moving stories featuring today’s business leaders, cultural icons, and champion athletes, as well as numerous practical tips. The book has received rave reviews around the world.
We have a limited number of hardcover copies of Think and Grow Rich: The Legacy available. They are AUD $35.95 including free shipping (although there will be an additional charge for international shipping).
It’s a wonderful read. Just be aware there are limited quantities available so, if you’re interested, get in quick.
You can also subscribe to James’ fortnightly VIP newsletter.
SHOT OF WHISKEY
In the old west a .45 cartridge for a six-gun cost 12 cents, so did a glass of whiskey. If a cowhand was low on cash he would often give the bartender a cartridge in exchange for a drink. This became known as a “shot” of whiskey.
THE WHOLE NINE YARDS
American fighter planes in WW2 had machine guns that were fed by a belt of cartridges. The average plane held belts that were 27 feet (9 yards) long. If the pilot used up all his ammo, he was said to have given it the whole nine yards.
BUYING THE FARM
During WW1 soldiers were given life insurance policies worth $5,000. This was about the price of an average farm so if You died you “bought the farm” for your survivors.
This came about from the ironclad ships of the Civil War. It meant something so strong it could not be broken.
PASSING THE BUCK / THE BUCK STOPS HERE
Most men in the early west carried a jack knife made by the Buck knife company. When playing poker it was common to place one of these Buck knives in front of the dealer so that everyone knew who he was. When it was time for a new dealer the deck of cards and the knife were given to the new dealer. If this person didn’t want to deal he would “pass the buck” to the next player. If that player accepted then “the buck stopped there”.
The Mississippi River was the main way of travelling from north to south Riverboats carried passengers and freight but they were expensive so most people used rafts. Everything had the right of way over rafts which were considered cheap. The steering oar on the rafts was called a “riff” and this transposed into riff-raff, meaning low class.
The Old English word for “spider” was “cob”.
SHIP STATE ROOMS
Traveling by steamboat was considered the height of comfort. Passenger cabins on the boats were not numbered. Instead they were named after states To this day cabins on ships are called staterooms.
Early beds were made with a wooden frame. Ropes were tied across the frame in a criss-cross pattern. A Straw mattress was then put on top of the ropes. Over time the ropes stretched, causing the bed to sag. The owner would then tighten the ropes to get a better night’s sleep.
These were floating theaters built on a barge that was pushed by a steamboat. These played small towns along the Mississippi River. Unlike the boat shown in the movie “Showboat” These did not have an engine. They were gaudy and attention grabbing which is why we say someone who is being the life of the party is showboating”.
OVER A BARREL
In the days before CPR a drowning victim would be placed Face down over a barrel and the barrel would be rolled back and forth in a effort to empty the lungs of water. It was rarely effective. If you are over a barrel you are in deep trouble.
Heavy freight was moved along the Mississippi in large barges pushed by steamboats. These were hard to control and would sometimes swing into piers or other boats. People would say they “barged in”.
Steamboats carried both people and animals. Since pigs smelled so bad they would be washed before being put on board. The mud and other filth that was washed off was considered useless “hog wash”.
The word “curfew” comes from the French phrase “couvre-feu”, which means “cover the fire”. It was used to describe the time of blowing out all lamps and candles It was later adopted into Middle English as “curfeu”, which later became the modern “curfew”. In the early American colonies homes had no real fireplaces so a fire was built in the center of the room. In order to make sure a fire did not get out of control during the night it was required that, by an agreed upon time, all fires would be covered with a clay pot called-a “curfew”.
BARRELS OF OIL
When the first oil wells were drilled they had made no Provision for storing the liquid so they used water barrels. That is why, to this day, we speak of barrels of oil rather than gallons.
HOT OFF THE PRESS
As the paper goes through the rotary printing press friction causes it to heat up. Therefore, if you grab the paper right off the press It is hot. The expression means to get immediate Information.
I hope you have enjoyed the latest edition of Noel News.
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